How to plan your mutual fund investments. Read here

· Financial Consultant

Over the years, mutual funds have come across as a popular and fairly profitable instrument of investment. They have proved to be more hassle free and risk averse as compared to direct stock investments.

Here is an insight on how you can plan your mutual fund investment:

Short-term investment

What?

As the name suggests, these investments are made for short periods of time, typically for 12-month duration or even less.

When?

These investments are a boon in emergency situations. Be it a medical emergency or the sudden need of money for down payment of your car, short term mutual funds can bail you out.

What to keep in mind?

Since the investment is for a brief period, it needs to be ensured that your investment is insulated from market volatility. It is important as you would not want to see your investment numbers cut a sorry figure at the time of emergency. So, it is advised to invest in low-risk options -- liquid funds like Commercial Papers (CPs) and T-Bills or debt funds like government bonds, company debentures, fixed income assets etc.

Mid-term investment

What?

These kind of mutual fund investments are made for a period of 1-3 years

In mid-term investments, your aim should be to have the best of both worlds. That is, you should eye to maximize your capital gains but at the same time you cannot afford to take too much risk as the period of investment in this case, is still not very long. So you can choose to stick with debt funds or maybe opt for Systematic Investment Plan (SIP) or monthly investments. SIP in mutual fund is recommended as a great way for a salaried person to invest in equity markets for long-term basis without understanding the working of equity markets.

Long-term investment

What?

Any mutual fund investment for a period of more than three years is termed as a long-term investment.

When?

As it is quite evident from the nature of the investment, long-term investments hold good if you are planning for the future. If you want to sort out your retirement plans, save for old- age health issues or nurture your child's education, you should definitely go for long-term investments.

What to keep in mind?

Since the investment is a long-drawn one, you can take down your guards off to some extent, against market volatility. You won't mind taking a few risks to rake in the maximum possible profits. So you can choose to invest in equity funds i.e. in shares of companies.